COMPANIES ACT, 2013

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Introduction

The Companies Bill as passed by Lok Sabha on 18th December2012 (called Companies Bill, 2012) and passed by Rajya Sabha on8th August 2013 (became Companies Bill 2013). Section 1 came intoeffect from 30th August 2013 i.e. the date of notification in the officialGazette after it received assent of President of India on August 29,2013 and became the Companies Act, 2013 (Act 18 of 2013).

The Companies Act, 2013 is more of a rule-based legislation.It contains 470 sections and a significant part of the legislation willbe in the form of rules.

The Act of 2013 intends to promote self-regulation and is aimedat building a smooth and easy corporate environment along with thenew and improved measures of strong investor protection norms.

Sections of the Act and Rules Notified

The Ministry of Corporate Affairs notified 98 sections of theCompanies Act, 2013 vide its notification dated 12th September, 2013the effective date of which is 12th September 2013.

On February 27, 2014, the provisions of Section 135 i.e. CorporateSocial Responsibility were notified to come into force w.e.f. April 01,2014 along with Companies (Corporate Social Responsibility Policy)Rules, 2014 and Schedule VII.

On March 26 2014, 183 sections of the Companies Act, 2013 andsix schedules were notified by the Ministry of Corporate Affairs andcame into effect from April 1, 2014.

282 Sections of the Companies Act, 2013 have been notified so far.The gist of sections notified are as under:

Chapter I relating to Preliminary – (Section 1; Section 2 exceptthose provisions relating to Special Courts/ National Company

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Law Tribunal and Appellate Tribunal (hereinafter referred to asTribunal)/ layers of subsidiary).

Chapter II relating to Incorporation of company and mattersincidental thereto (Section 3 to 22 except provisions relating to‘Tribunal’).

Chapter III relating to Prospectus and allotment of securities(Section 23 to 42 except provisions relating to ‘Tribunal’ includingsection 48).

Chapter IV relating to Share capital and debentures (Sections 43to 72 except provisions relating to ‘Tribunal’ including section 66).

Chapter V relating to Acceptance of deposits by companies (Section73 to 76 except section 75 as it involves powers to be exercised by‘Tribunal’).

Chapter VI relating to Registration of charges (Sections 77 to 87).

Chapter VII relating to Management and administration (Sections88 to 122 expect section 97-99 as it involves powers to be exercisedby ‘Tribunal’).

Chapter VIII relating to Declaration and payment of dividend(Sections 123 to 127 except section 124 &125 as it involves powersto be exercised by ‘Tribunal’ and Investor Education ProtectionFund).

Chapter IX relating to Accounts of companies (Sections 128 to138 except section 130 to 132 relating to ‘Tribunal’, NationalFinancial Reporting Authority).

Chapter X relating to Audit and auditors (Sections 139 to 148except second provision to subsection 4 & 5 of section 140).

Chapter XI relating to Appointment and qualifications of directors(Sections 149 to 172 except sub-section 169(4) relating to‘Tribunal’).

Chapter XII relating to Meetings of board and its powers(Sections 173 to 195).

Chapter XIII relating to Appointment and remuneration ofmanagerial personnel (Sections 196 to 205).

Chapter XIV relating to Inspection, inquiry and investigation(Sections 206 to 229 except sections 212 (8) to (10),213, 216,220, 221 as these sections involves powers to be exercised by‘Tribunal’)

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Chapter XXI relating to PART I.— Companies Authorised to Registerunder this Act (Sections 366 to 374 except sections 370, 372 &373 as these sections involves powers to be exercised by Court).

Chapter XXII relating to Companies incorporated outside India(Sections 379 to 393 except sub-section (2) of 391).

Chapter XXIII relating to Government companies (Sections 394 to395).

Chapter XXIV relating to Registration offices and fees(Sections 396 to 404 except reference to the word ‘Tribunal’in sub section (2) of 399).

Chapter XXV relating to Companies to furnish information orstatistics (Section 405).

Chapter XXVI relating to Nidhis (Section 406).

Chapter XXVII relating to Constitution of National Company LawTribunal and Appellate Tribunal- (Section 407 to 414).

Chapter XXVIII relating to Special courts (Section 439, 442 to446).

Chapter XXIX relating to Miscellaneous (Section 447 to 470 exceptsections 465 and 466 relating to repeal of certain enactments anddissolution of Company Law Board).

Schedule I relating to Memorandum and Articles of Association ofCompanies.

Schedule II relating to useful lives to compute depreciation.

Schedule III relating to general instructions for preparation ofBalance Sheet and Statement of Profit and Loss of a Company.

Schedule IV relating to Code for Independent Directors.

Schedule V relating to Appointment and Remuneration of Amanaging or whole time director or a manager.

Schedule VI relating to infrastructural projects and infrastructuralfacilities.

Schedule VII relating Corporate Social Responsibility activities.

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Rules notified

The following Rules under the Companies Act, 2013 have beennotified as on March 31, 2014 to take effect from April 1, 2014.

Rules Related chapter

1. Companies (Specification of definitionsdetails) Rules, 2014 Chapter I

2. Companies (Incorporation) Rules, 2014 Chapter II

3. Companies (Prospectus and Allotment ofSecurities) Rules, 2014 Chapter III

4. The Companies (Share Capital andDebenture) Rules, 2014 Chapter IV

5. Companies (Acceptance of Deposits) Rules,2014 Chapter V

6. The Companies (Registration of Charges)Rules, 2014 Chapter VI

7. The Companies (Management andAdministration) Rules, 2014 Chapter VII

8. The Companies (Declaration and Paymentof Dividend) Rules, 2014 Chapter VIII

9. The Companies (Accounts) Rules, 2014 Chapter IX

10. Companies (Corporate Social Responsibility)Rules, 2014 Chapter IX

11. Companies (Audit and Auditors) Rules, 2014 Chapter X

12. The Companies ( Appointment andQualification of Directors) Rules, 2014 Chapter XI

13. Companies (Meetings of Board and itsPowers) Rules, 2014 Chapter XII

14. Companies (Appointment andRemuneration of Managerial Personnel)Rules, 2014 Chapter XIII

15. Companies (Inspection, Investigation andInquiry) Rules, 2014 Chapter XIV

16. Companies (Authorised to Registered)Rules, 2014 Chapter XXI

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17. Companies (Registration of ForeignCompanies) Rules, 2014 Chapter XXII

18. Companies (Registration Offices and Fees)Rules, 2014 Chapter XXIV

19. Nidhi Rules, 2014 Chapter XXVI

20. Companies (Adjudication of Penalties)Rules, 2014 Chapter XXIX

21. Companies (Miscellaneous) Rules, 2014 Chapter XXIX

The nomenclature of the Rules are based on the names of thechapters under the Act.

Gist of Sections not notified

Chapter XV relating to Compromises, Arrangements andAmalgamations (Sections 230 to 240).

Chapter XVI relating to Prevention of Oppressions andMismanagement (Sections 241 to 246).

Chapter XVII relating to Registered Valuers (Section 247).

Chapter XVIII relating to Removal of names of companies fromthe Register of Companies (Sections 248 to 252).

Chapter XIX relating to Revival and Rehabilitation of sick companies(Sections 253 to 269).

Chapter XX relating to winding up (Sections 270 to 365).

Chapter XXI relating to Part II of Chapter XXI winding up ofunregistered companies (Sections 375 to 378).

Chapter XXVII relating National Company Law Tribunal andAppellate Tribunal- (Section 415 to 434).

Chapter XXVIII relating to Special courts (Section 435 to 438,440 & 441).

Applicability

The provisions of this Act shall apply to—

(a) companies incorporated under this Act or under any previouscompany law;

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(b) insurance companies, except in so far as the said provisions areinconsistent with the provisions of the Insurance Act, 1938 orthe Insurance Regulatory and Development Authority Act,1999;

(c) banking companies, except in so far as the said provisions areinconsistent with the provisions of the Banking Regulation Act,1949;

(d) companies engaged in the generation or supply of electricity,except in so far as the said provisions are inconsistent with theprovisions of the Electricity Act, 2003;

(e) any other company governed by any special Act for the timebeing in force, except in so far as the said provisions areinconsistent with the provisions of such special Act; and

(f) such body corporate, incorporated by any Act for the timebeing in force, as the Central Government may, by notification,specify in this behalf, subject to such exceptions, modificationsor adaptation, as may be specified in the notification.

Definitions

Section 2 provides the definitions of the terms used under the Act.Some of the definitions are provided here:

2(1) “abridged prospectus” means a memorandum containing suchsalient features of a prospectus as may be specified by the Securities andExchange Board by making regulations in this behalf;

The term is defined in harmonization with SEBI regulations.

2(6) “associate company”, in relation to another company, meansacompany in which that other company has a significant influence, butwhich is not a subsidiary company of the company having such influenceand includes a joint venture company.

Explanation.—For the purposes of this clause, “significant influence”means control of at least twenty per cent. of total share capital, or ofbusiness decisions under an agreement;

The definition of an associate is based on control of minimum 20percent ownership of total share capital or of business decisions.

The term ‘control’ includes:

- the right to appoint majority of the directors; or

- to control the management or policy decisions exercisable by a

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person or persons acting individually or in concert, directly orindirectly.

This control may be by virtue of their shareholding or managementrights or shareholders agreements or voting agreements or in any othermanner;

It will have the following impact on various provisions of theAct as under:

- A company will now be required to lay, along with the financialstatement, the consolidated financial statements of itssubsidiaries. The word subsidiary will include associatecompany and joint venture.

- Annual return of every company shall contain the particularsof associate companies. Register of directors and key managerialpersonnel kept under section 170 is required to include thedetails of securities held by each of them in company or itsholding, subsidiary, subsidiary of company’s holding companyor associate companies.

- The auditor cannot provide certain specified non-audit servicesto the associate companies.

- Prohibition on forward dealings in securities of company bydirector or key managerial personnel under section 194 appliesto associate company also.

- The associate companies are to be considered as ‘related parties’under section 188.

These provisions are expected to strengthen the good corporategovernance practices.

2(7) “auditing standards” means the standards of auditing orany addendum thereto for companies or class of companies referred to insub-section (10) of section 143;

Auditing standards have been given legal recognition under theAct which requires that every auditor shall comply with the auditingstandards notified by Central Government.

2(12) “book and paper” and “book or paper” include booksof account, deeds, vouchers, writings, documents, minutes and registersmaintained on paper or in electronic form;

Maintenance of documents in electronic form is recognized.

2(14) “branch office”, in relation to a company, means anyestablishment described as such by the company;

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This definition is simplified. Any establishment which is describedas branch office by the company would be termed as branch office.

2(18) “Chief Executive Officer” means an officer of a company,who has been designated as such by it;

This term is newly recognized term. Chief Executive Officer (CEO)is recognized as Key Managerial Personnel of the company. In theprescribed class of companies, either Managing Director or CEO ormanager and in their absence a whole time director must be appointed.

2(19) “Chief Financial Officer” means a person appointed asthe Chief Financial Officer of a company;

This term is newly recognized term. Chief Financial Officer (CFO)is recognized as Key Managerial Personnel of the company. There mustbe an CFO in the prescribed class of companies as per the provisions ofsection 203.

2(23) “Company Liquidator”, in so far as it relates to the windingup of a company, means a person appointed by—

(a) the Tribunal in case of winding up by the Tribunal; or

(b) the company or creditors in case of voluntary winding up,

as a Company Liquidator from a panel of professionals maintained by theCentral Government under sub-section (2) of section 275;

Company Liquidator needs to be appointed from panel ofprofessionals maintained by Central Government consisting of thenames of Chartered Accountants, advocates, company secretaries, costaccountants and other notified professionals who are having atleastten years’ experience in company matters. (This Clause not notified)

2(27) “control” shall include the right to appoint majority of thedirectors or to control the management or policy decisions exercisable by aperson or persons acting individually or in concert, directly or indirectly,including by virtue of their shareholding or management rights orshareholders agreements or voting agreements or in any other manner;

The term control is defined which is intended to bring clarity.

It is the right which may be exercisable by individual or in concert,directly or indirectly.

This control may have been gained by any manner would becovered. Hence the controlling partied are suitably bound by theprovisions under this Act to act or to disclose in the specified manner.

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2(31) “deposit” includes any receipt of money by way of deposit orloan or in any other form by a company, but does not include such categoriesof amount as may be prescribed in consultation with the Reserve Bank ofIndia;

Stringent norms are prescribed for acceptance of deposits.Companies are allowed to accept deposits only from members aftercomplying with certain conditions. Only the big companies fulfillingcertain prescribed criteria can invite deposits from public which arealso subject to complying with certain conditions including creditrating.

2(36) “document” includes summons, notice, requisition, order,declaration, form and register, whether issued, sent or kept in pursuance ofthis Act or under any other law for the time being in force or otherwise,maintained on paper or in electronic form;

Maintenance of documents in electronic form is recognized.

2(37) “employees’ stock option” means the option given to thedirectors, officers or employees of a company or of its holding company orsubsidiary company or companies, if any, which gives such directors, officersor employees, the benefit or right to purchase, or to subscribe for, the sharesof the company at a future date at a pre-determined price;

Directors, officers or employees of holding or subsidiary companyare also eligible for Employee stock options.

2(38) “expert” includes an engineer, a valuer, a chartered accountant,a company secretary, a cost accountant and any other person who has thepower or authority to issue a certificate in pursuance of any law for thetime being in force;

‘Expert’ is a newly recognized term. It is an inclusive definition.They are held responsible under various provisions of the Act.

2(40) “financial statement” in relation to a company, includes—

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carryingon any activity not for profit, an income and expenditureaccount for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, anydocument referred to in sub-clause (i) to sub-clause (iv):

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Provided that the financial statement, with respect to One PersonCompany, small company and dormant company, may not include thecash flow statement;

Cash flow statement and changes in equity is recognized underthe ‘financial statement’ of the company. The Act introduces a newprovision on re-opening/restatement of financial statements subjectto compliance of provisions. It also recognizes voluntary restatementon application by the Board of Directors if in their opinion the financialstatements/ Board report do not comply with the requirements of theAct. This is also subject to complying with the provisions of Act.

2(41) “financial year”, in relation to any company or bodycorporate, means the period ending on the 31st day of March every year,and where it has been incorporated on or after the 1st day of January of ayear, the period ending on the 31st day of March of the following year, inrespect whereof financial statement of the company or body corporate ismade up:

Provided that on an application made by a company or bodycorporate, which is a holding company or a subsidiary of a companyincorporated outside India and is required to follow a different financialyear for consolidation of its accounts outside India, the Tribunal may,if it is satisfied, allow any period as its financial year, whether or notthat period is a year:

Provided further that a company or body corporate, existing on thecommencement of this Act, shall, within a period of two years from suchcommencement, align its financial year as per the provisions of this clause;

The Act requires all companies to adopt a uniform financial yearof 1 April to 31 March.

Only holding or subsidiary companies of a company incorporatedoutside India would be entitled to the exception of having a differentaccounting year.

However, these companies have to seek specific approval from theTribunal to avail the exception.

2(42) “foreign company” means any company or body corporateincorporated outside India which—

(a) has a place of business in India whether by itself or through anagent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner.

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As per the rule 2 (1)(h) of Company (Specification of DefinitionDetails) Rules, 2014 for the purposes of clause (42) of section 2 of theAct, the phrase ‘electronic mode’ means carrying out electronicallybased, whether the main server is installed in India or not, but notlimited to -

(i) business to business and business to consumer transactions,data interchange and other digital supply transactions;

(ii) offering to accept deposits or subscriptions in India or fromcitizens of India;

(iii) financial settlements, web based marketing, advisory andtransactional services database services and products, supplychain management;

(iv) online services such as telemarketing, telecommuting,telemedicine, education and information research; and

(v) all related data communication services, whether conductedby e-mail, mobile devices, social media, cloud computing,document management, voice or data transmission orotherwise.

With this, the companies doing business through electronic modeare also termed as foreign company and need to comply with thespecified provisions.

2(43) “free reserves” means such reserves which, as per the latestaudited balance sheet of a company, are available for distribution asdividend:

Provided that—

(i) any amount representing unrealised gains, notional gains orrevaluation of assets, whether shown as a reserve or otherwise, or

(ii) any change in carrying amount of an asset or of a liabilityrecognized in equity, including surplus in profit and loss accounton measurement of the asset or the liability at fair value, shall notbe treated as free reserves;

2(44) “Global Depository Receipt” means any instrument inthe form of a depository receipt, by whatever name called, created by aforeign depository outside India and authorised by a company making anissue of such depository receipts;

2(45) “Government company” means any company in which notless than fifty-one per cent of the paid-up share capital is held by the

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Central Government, or by any State Government or Governments, or partlyby the Central Government and partly by one or more State Governments,and includes a company which is a subsidiary company of such aGovernment company;

2(47) “independent director” means an independent directorreferred to in sub-section (5) of section 149;

Independent Director is recognized in the law. He has an importantrole under the law. As per the definition, he must be the one who is nothaving any conflict of interest. He should be independent in letter andspirit.

2(48) “Indian Depository Receipt” means any instrument inthe form of a depository receipt created by a domestic depository in Indiaand authorised by a company incorporated outside India making an issueof such depository receipts;

2(49) “interested director” means a director who is in any way,whether by himself or through any of his relatives or firm, body corporateor other association of individuals in which he or any of his relatives is apartner, director or a member, interested in a contract or arrangement, orproposed contract or arrangement, entered into or to be entered into by oron behalf of a company;

2(51) “key managerial personnel”, in relation to a company,means—

(i the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed;

The new law enshrines a significant duty on the Key ManagerialPersonnel (KMP) of the company in successful running of the company.It clearly specifies that whole time KMP not to hold office in morethan one company except in its subsidiary at same time. The KMPwould guide the Boards to achieve their defined objectives, and purposesby adherence to good Corporate Governance practices. KMP wouldalso be looked upon by the Regulators for the non-compliances.

Key Managerial personnel are also included in ‘related parties’ ofthe company.

2(57) “net worth” means the aggregate value of the paid-up share

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capital and all reserves created out of the profits and securities premiumaccount, after deducting the aggregate value of the accumulated losses,deferred expenditure and miscellaneous expenditure not written off, as perthe audited balance sheet, but does not include reserves created out ofrevaluation of assets, write-back of depreciation and amalgamation;

In section 76 i.e. Acceptance of deposits from public by certaincompanies. The term is used as a criteria for acceptance of depositsfrom persons other than its members.

In section 135 i.e. ‘Corporate Social Responsibility’, the term isused as a criteria for constituting CSR Committee.

In section 148 (2), i.e. Central Government to specify audit of itemsof cost in respect of certain companies, net worth is one of the criteriafor classifying the company by Central Government to specify auditof items of cost in respect of certain companies.

Under draft rules also, the term net worth has been used at manyplaces.

2(60) “officer who is in default”, for the purpose of any provisionin this Act which enacts that an officer of the company who is in defaultshall be liable to any penalty or punishment by way of imprisonment, fineor otherwise, means any of the following officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directorsas specified by the Board in this behalf and who has or have givenhis or their consent in writing to the Board to such specification, orall the directors, if no director is so specified;

(iv) any person who, under the immediate authority of the Board orany key managerial personnel, is charged with any responsibilityincluding maintenance, filing or distribution of accounts or records,authorises, actively participates in, knowingly permits, orknowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions orinstructions the Board of Directors of the company is accustomedto act, other than a person who gives advice to the Board in aprofessional capacity;

(vi) every director, in respect of a contravention of any of the provisionsof this Act, who is aware of such contravention by virtue of thereceipt by him of any proceedings of the Board or participation in

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such proceedings without objecting to the same, or where suchcontravention had taken place with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, theshare transfer agents, registrars and merchant bankers to the issueor transfer;

A close analysis of the section reveals that liability as officer indefault is fastened on all the officers specified in clauses (i) to (vii). Allthe said seven specified categories of officers would be deemed to beofficer who is in default irrespective of whether they were party to thedefault or not. It would be enough to show that a statutory provisionhas not been complied with to bring them under this section. However,it applies to those provisions of the Act, which uses the expression‘officer who is in default’.

The share transfer agents, registrars and merchant bankers to theissue or transfer are also identified as officer in defaults as far as issueof shares or transfer of shares of company is concerned.

2(62) “One Person Company” means a company which has only oneperson as a member.

As per section 3(1)(c), One person Company is considered as aprivate company.

In terms of Rule 3 of the Companies (Incorporation) Rules, 2014,only a natural person who is an Indian citizen and resident in India iseligible to incorporate OPC.

Many relaxations have been granted to OPC in compliances andprocedural aspects. For example, OPC is not required to hold AGM.Relaxation with regard to holding board meetings, preparation offinancial statements (cash flow exempted), signing of annual returnetc.

2(65) “postal ballot” means voting by post or through any electronicmode; Electronic mode is recognized.

2(68) “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital asmay be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of itsmembers to two hundred:

Provided that where two or more persons hold one or more shares

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in a company jointly, they shall, for the purposes of this clause, betreated as a single member:

Provided further that—

(A) persons who are in the employment of the company; and

(B) persons who, having been formerly in the employment of thecompany, were members of the company while in thatemployment and have continued to be members after theemployment ceased, shall not be included in the number ofmembers; and

(iii) prohibits any invitation to the public to subscribe for any securitiesof the company;

Maximum number of members that a private company can haveis 200.

Private companies are treated at par with public companies as faras compliances under the Act are concerned. Number of exemptionsare less as compared to those given by 1956 Act.

(69) “promoter” means a person—

(a) who has been named as such in a prospectus or is identifiedby the company in the annual return referred to in section92; or

(b) who has control over the affairs of the company, directlyor indirectly whether as a shareholder, director or otherwise;or

(c) in accordance with whose advice, directions or instructionsthe Board of Directors of the company is accustomed toact:

Provided that nothing in sub-clause (c) shall apply to a person who isacting merely in a professional capacity;

The term is defined to bring clarity. Promoters have been held liableat various provisions of the Act for ex. Incorporation by falsedocuments, alteration of objects for which the company has raisedfunds, misstatements in prospectus etc.

2(71) “public company” means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital of five lakh rupees orsuch higher paid-up capital, as may be prescribed:

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Provided that a company which is a subsidiary of a company, notbeing a private company, shall be deemed to be public company for thepurposes of this Act even where such subsidiary company continues to be aprivate company in its articles;

It is clarified the status of a private company which is a subsidiaryof a public company by providing specifically in the proviso that suchcompany shall be deemed to be public company irrespective of itsstatus as private company in its articles.

2(74) “register of companies” means the register of companiesmaintained by the Registrar on paper or in any electronic mode under thisAct;

Maintenance of Register of companies in electronic mode isrecognized.

2(75) “Registrar” means a Registrar, an Additional Registrar, aJoint Registrar, a Deputy Registrar or an Assistant Registrar, having theduty of registering companies and discharging various functions under thisAct;

2(76)“related party”, with reference to a company, means—

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is apartner;

(iv) a private company in which a director or manager is amember or director;

(v) a public company in which a director or manager is adirector or holds along with his relatives, more than twoper cent. of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managingdirector or manager is accustomed to act in accordancewith the advice, directions or instructions of a director ormanager;

(vii) any person on whose advice, directions or instructions adirector or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall applyto the advice, directions or instructions given in aprofessional capacity;

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(viii) any company which is—

(A) a holding, subsidiary or an associate company of suchcompany; or

(B) a subsidiary of a holding company to which it is also asubsidiary;

(ix) such other person as may be prescribed;

As per Company (Specification of Definition Details) Rules, 2014,for the purposes of sub-clause (ix) of clause (76) of section 2 of theAct, a director or key managerial personnel of the holding companyor his relative with reference to a company, shall be deemed to be arelated party.

2(77) ‘‘relative’’, with reference to any person, means anyone whois related to another, if—

(i) they are members of a Hindu Undivided Family;

(ii) they are husband and wife; or

(iii) one person is related to the other in such manner as may beprescribed;

As per Company (Specification of Definition Details) Rules, 2014the List of relatives in terms of clause (77) of section 2is as under:

(1) Father:

Provided that the term “Father” includes step-father.

(2) Mother:

Provided that the term “Mother” includes the step-mother.

(3) Son:

Provided that the term “Son” includes the step-son.

(4) Son’s wife.

(5) Daughter.

(6) Daughter’s husband.

(7) Brother:

Provided that the term “Brother” includes the step-brother;

(8) Sister:

Provided that the term “Sister” includes the step-sister.

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2(79) “Schedule” means a Schedule annexed to this Act;

There are seven schedules which are annexed to the Act. These areas below:

Schedule I: Memorandum of Association and Articles ofAssociation, pursuant to sections 4 and 5

Schedule II: Useful lives to compute depreciation, pursuant tosection 123;

Schedule III: General Instructions for preparation of balance sheetand statement of Profit and loss of a company,pursuant to section 129;

Schedule IV: Code of Independent Directors, pursuant to section149(7);

Schedule V: Conditions to be fulfilled for the appointment of amanaging or whole-time director or a managerwithout the approval of the Central Government,pursuant to sections 196 and 197;

Schedule VI: Definition of the term “infrastructural projects” of“infrastructural facilities”, pursuant to sections 55and 186;

Schedule VII: Activities which may be included in Corporate SocialResponsibility policies, pursuant to section 135.

2(83) “Serious Fraud Investigation Office” means the officereferred to in section 211;

Serious Fraud Investigation Office is functional under thesupervision of Ministry of Corporate Affairs. It is now recognized underthe Companies Act.

2 (85) ‘‘small company’’ means a company, other than a publiccompany,—

(i) paid-up share capital of which does not exceed fifty lakh rupeesor such higher amount as may be prescribed which shall notbe more than five crore rupees; or

(ii) turnover of which as per its last profit and loss account doesnot exceed two crore rupees or such higher amount as may beprescribed which shall not be more than twenty crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

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(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

New form of company is recognized which is a private companywhich is subject to certain relaxations in terms of compliances.

Further, a holding company or a subsidiary company, a companyregistered under section 8, or a company or body corporate governedby any special Act cannot be a small company even if it fulfills thecriteria of paid up capital or turnover.

Merger or amalgamation between two or more small companieshas been simplified without the requirement of court process.

2(87) “subsidiary company” or “subsidiary”, in relation toany other company (that is to say the holding company), means a companyin which the holding company—

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the total sharecapital either at its own or together with one or more of itssubsidiary companies:

Provided that such class or classes of holding companies as may beprescribed shall not have layers of subsidiaries beyond such numbersas may be prescribed. (This proviso not notified)

Explanation.—For the purposes of this clause,—

(a) a company shall be deemed to be a subsidiary company of theholding company even if the control referred to in sub-clause(i) or sub-clause (ii) is of another subsidiary company of theholding company;

(b) the composition of a company’s Board of Directors shall bedeemed to be controlled by another company if that othercompany by exercise of some power exercisable by it at itsdiscretion can appoint or remove all or a majority of thedirectors;

(c) the expression “company” includes anybody corporate;

(d) “layer” in relation to a holding company means its subsidiaryor subsidiaries;

The definition of a subsidiary under the 2013 is based onownership of the total share capital which includes preferenceshare capital. As per the Rule 2(1)(r) of Companies (Specification

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of definitions details) Rules, 2014 the term “Total ShareCapital”, for the purposes of clause (6) and clause (87) ofsection 2, means the aggregate of the :

(a) paid-up equity share capital; and

(b) convertible preference share capital;

This will have a significant impact on several companies whichhave issued preference shares. Because of this provision, holding-subsidiary relationships would come existence between variouscompanies.

Provision restricting number of layers of subsidiaries is incorporated.

MCA clarification no. No.1/1212013-cl-v dated December 27,2013:

Subject: Clarification with regard to holding of shares or exercisingpower in a fiduciary capacity - Holding and Subsidiary relationshipunder Section 2(87) of the Companies Act, 2013.

“This Ministry has received a number of representations consequentupon notifying section 2(87) of the Companies Act, 2013 which defines“subsidiary company” or “subsidiary”. The stakeholders have requestedthis Ministry to clarify whether shares held or power exercisable by acompany in a ‘fiduciary capacity’ will be excluded while determiningif a particular company is a subsidiary of another company. Thestakeholders have further pointed out that in terms of section 4(3) ofthe Companies Act, 1956, such shares or powers were excluded fromthe purview of holding-subsidiary relationship.

The matter has been examined in the Ministry and it is herebyclarified that the shares held by a company or power exercisable by itin another company in a ‘fiduciary capacity’ shall not be counted forthe purpose of determining the holding-subsidiary relationship in termsof the provision of section 2(87) of the Companies Act, 2013.”

2(88) “sweat equity shares” means such equity shares as areissued by a company to its directors or employees at a discount or forconsideration, other than cash, for providing their know-how or makingavailable rights in the nature of intellectual property rights or valueadditions, by whatever name called;

2(89) “total voting power”, in relation to any matter, means thetotal number of votes which may be cast in regard to that matter on apoll at a meeting of a company if all the members thereof or their proxieshaving a right to vote on that matter are present at the meeting and casttheir votes;

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2(90) “Tribunal” means the National Company Law Tribunalconstituted under section 408;

National Company Law Tribunal is empowered to entertain allthe company matters. It would serve single window settlement ofcase relating to companies thereby reducing the time for completionof proceedings.

2(95) words and expressions used and not defined in this Act butdefined in the Securities Contracts (Regulation) Act, 1956 or the Securitiesand Exchange Board of India Act, 1992 or the Depositories Act, 1996 shallhave the meanings respectively assigned to them in those Acts.